Last month, I took out a loan that had an effective APR of 243,333 per cent. But I didn't go to a payday lender to do it. Although the worst of them do offer loans with interest rates in the hundred thousands, a more typical cost of a payday loan is something like Wonga, which cites a representative APR of 5,853 per cent on its website.
No, instead, I took out an authorised overdraft at my bank. I didn't mean to, you understand; a Kickstarter project I'd backed finished, and charged me about £15. The email was caught by a spam filter, and I'd forgotten it was coming, so my mental accounting was thrown out of whack. By the time I found out, I'd been overdrawn by 17p for two days. For that privilege, my bank charged me the princely sum of £2.
Just for comparison, Wonga themselves, the arch-villain of the day, would have charged me a third of a penny, if they did loans that small, though their handling fee would have been much larger.
In my defence, I'm not an entirely ignorant consumer. The bank account I have does have punitively high interest rates if you go slightly overdrawn, but at the same time, it pays me money for being in credit (something you won't find all that frequently these days). When I'm not an idiot, the two balance out to leave me slightly better off.
But it does leave me wondering at how we pick which companies are evil. Justin Welby, the archbishop of Canterbury, today says he is "embarrassed" to discover that the Church has a financial stake in Wonga. On a scale of one to ten, his embarrassment ranks "about eight", apparently. But where would an investment in my bank rank? Or is a bank a respectable institution, above criticism, even when the numbers involved tell a different story?
Part of the answer is that the numbers involved don't, in fact, tell the whole story. Quoting the interest rate for my bank is misleading: a better way of phrasing it is to say "I am charged £1 for every day I have an authorised overdraft between £0 and £500". The only reason why my effective APR was so high is because the amount I "borrowed" was so low. But for payday lenders, there's also other ways to phrase it which are less misleading. Wonga, for instance, charges interest of one per cent for every day the loan is taken out, plus a flat handling fee.
But there's also a question of business practices. It's fair to say that advising students to take out a payday loan instead of a student loan, for instance, is not particularly ethical. But then, neither is systematically selling insurance to people who don't need it and will never be able to claim on it, or lying about how much lending costs you in order to boost your profits. It's the financial sector as a whole which could do with a healthy dose of ethics, it seems.